Alexander Temerev’s Blog

Watches, cheese, chocolate… previously there was something else on that list.

Now it’s gone. There is no bank secrecy anymore at Switzerland. Any government looter can approach bank officials and accuse account owner in so-called “tax evasion”. The very same way it was done in USSR.

The mighty Fed launches it’s new, “much awaited” (the term of Associated Press) consumer credit program: TALF (Term Asset-Backed Securities Loan Facility) — so perfectly Keynesian that it screams “credit expansion!”.

We might note that credit expansion is what have started the current crisis; so if the government wants to replace the market’s invisible hand with its own (quite visible), it would be logical for it to start with re-establishing sound credit and trust between market participants, sorting good debt from bad debt (and dumping the latter). Logical? There is no logic in government’s actions, only the desire of using old dusty Keynesian recipes to cover their butts. OK, so what is the essence of this program?

One word: spoiling. TALF spoils the web of trust between debtors and creditors: now virtually all debtors are equal (to some extent), backed by full power of the Fed and Helicopter Ben’s dollars. Now it’s impossible to tell the difference between a honest person who wants to repay the credit on time and a crook who wants to exploit the system (which is perfectly exploitable). They did exactly the same on mortgage loans, guaranteeing bad debt by government decrees; now they want to play this game with other asset-backed securities. To make matters worse, they support consumer credits, which, without the means for production and declining businesses, oppressed by new tax codes, are the fastest way to create another positive feedback loop of bad debts — another downward spiral of ruined credits.

This program is so evil it almost looks like a sabotage. However, I don’t believe in deliberate sabotage of this kind (yet). What I do believe is infinite dumbness of some economists deeply submerged into philosophy of Pragmatism. They will get what they deserve, but not before bringing mixed economy to smoking ashes.

The Dow closed today well below 7000 (6763.29, to be exact). Well, what did they expect?

Money flee from the public economy because the very word “public” now means immediate danger to private capital, as governments’ “regulations” and “immediate measures” now move more to be like expropriations. The money is still there. What’s not there is the desire to produce anymore. Why produce if you can’t keep profits?

For the further account of events to come, read “Atlas Shrugged”. Now we have stepped precisely to that scenario, and this scares me deeply.

Oswald Grübel, the new CEO of UBS, has stated (carefully) that Switzerland should change its bank secrecy laws to ease political pressure on the country. Well, that will mean nothing less than political and economical suicide for Switzerland. Hard-earned money from all over the world will flee to Hong Kong, Singapore etc., and we will turn into poor agricultural country with nothing to produce except cheese and watches. That would be the best case — the worst is the outright military aggression from any European country swarming with looters (we can name a few).

Governments all over the world seeking to distribute unearned money to “widows and orphans” who cannot repay their bad debt. But money does not grow on trees, contrary to what you (and Mr. Bernarke) might have heard. The solution? Take earned money (earned by someone else) in form of increased taxes and funnel it through the greedy throats of various pressure groups. OK, this may not work — business owners cannot operate in such conditions and will abandon their companies. No businesses — no taxes. Another solution will be direct nationalization of private businesses and using the money they generate to fuel “social needs”. We have seen it already. In East Germany, North Korea and USSR.

Once you’ve taken the road to socialism, you cannot turn back. It will always end the same. If Switzerland fails to be the safe haven for world’s money and will not protect it from governments’ looters, we will have to create a new financial center, with numbered accounts and anonymous operations. This center must be powerful enough to protect its customers’ assets, with military action if necessary. Which country will be brave enough to take the challenge?